Profit margins

[samuel5]

Just watching Dragons Den on catch up TV and the dragons slaughtered a consmetic company for buying a product at £9 and selling wholesale for £13.
This is a 30% margin and is not that bad for wholesale - especially for cosmetics where the returns rate would be very low?

What do you think?

Sam

 

[RobertN]

If they are selling for 13, I am afraid they do not pay 9 pounds for it.

Talking about cosmetic business manufacturers produce large quantities from 0.10p up to 5 pounds per product. Luxury formulations can go higher but even brands like la prairie DO NOT spend a fortune to produce their product - well la prairie maybe spend more on the packaging but not actual cream.

It's all about how u will market it.

Hope this answered your question.

 

[Mr D]

Just watching Dragons Den on catch up TV and the dragons slaughtered a consmetic company for buying a product at £9 and selling wholesale for £13.
This is a 30% margin and is not that bad for wholesale - especially for cosmetics where the returns rate would be very low?

What do you think?

Sam

I don't know about you but at 30% margin I'd lose money.

A business has costs, from its profit on all the sales it has to cover all its costs and make a profit.
Rent, freight, advertising, website, stand at trade events, insurance, staff wages etc.
All have to be covered. Whether the company sells anything or not.

 

[RobertN]

@Mr D but people won't in some scenarios.

Imagine selling luxury goods, that's what people make, they live from 10-20 percent when reselling. Because if you sell handmade rug for 10k making 20 percent it's quite a lot

 

[Mr D]

Luxury goods? Have done a few. If I'd have gone for 20% margin I'd have been working for around £1.50 an hour from design to handing over finished product to agent. Know many craftsmen willing to do that? Don't think I've met one.
That was mere precious metals with occasional gems. Hardly worth doing at all these days.

 

[RobertN]

Yes there are plenty of Craftsmen outside UK who are willing to work for that.

Myself I had hands on handmade rugs from Nepal - takes about 9 months to make one, cost about 300-500 pounds - price in UK from 4k up to 20k or even higher depending on designer name and size - so you can really make a good profit out of it with 20%.

If you did something that was not profitable doesn't really mean that all luxury market is same

You know what trades contract is yep? Trade account holders they don't get more than 20 percent out of luxury goods when reselling it, and trust me they make lots of money especially interior designers etc...

 

[Mr D]

I simply added on my time and a markup.
100 percent of designs taken to completion sold in that type of item - by my definition it was profitable.

9 months work? I would have added on probably 15k plus to the material cost before adding on profit margin. That's wholesale cost.

 

[RobertN]

Depending on size and quality and its done not by one person.
Persian rug can take up to 10 years to make, value around 100k in Harrods 20k elsewhere.

You can make up the price but honestly who is going to buy it then? Will you explain that 15k went for wool or silk? Or labor from Nepal? Have you ever tried to sell a piece of furniture for over 10k and seen how rich clients negotiate? Do you really think it's 2006 economic peak? People negotiate for penny and +15k would close your business.


There is no wholesale for serious luxury brands this is one of branding rules - they do not discount they sell a franchise or you can open a trade account and maximum you'll get is ±20 percent if we talking about luxury.


I believe we have made offtopic now. Or I did )

 

[Mr D]

Any serious craftsman adds to the price.
Full time would be adding a grand a week or more for time. That's a bit over 20 pounds an hour.

And there are some in any trade willing to work for free or subsidising item price themselves.

 

[RobertN]

20 pounds per hour on labor/craftsman from Nepal who gets 20/40 pounds per month?

You're not going to fool customer who buys goods for 10k+, they are more likely businessmen/women who know how much production in Nepal cost.

Free? 20 percent is not free. Again people in interior design market makes fortune from 20% imagine big interior design company sells 20 million worth of goods from Harrods for their customers per year they get 20 percent discount but they offer for a customer just 10% and keeps 10 percent for themselves. That's 2 Million per year. Probably can cover all wages

 

[Mr D]

I was thinking more of Western craftspeople.
And if you look on ebay, etsy, etc then you will find plenty of people making stuff for free and even subsidising the materials costs.

 

[RobertN]

No doubt about craftsmen from the west - they charge much more you're absolutely right.

eBay, Etsy, etc... first of all, that's not a luxury. Secondly, nothing is being made for free It is a smart way to collect lead data that 100 percent likes your type of niche.

 

[samuel5]

Not quite sure what you are waffling about Robert but I just wanted to hear opinions about why the dragons slated 30% profit margin on high volume wholesale orders, which I think is ok.

 

[RobertN]

I answered your question that they probably get more.

The rest was offtopic from what you've asked but was straightforward answers to another forum member and truthful information of course. Waffling? Whatever ))